Is the Landscape Changing for Backbone Providers?

The current economic climate in the U.S. requires that players in the highly
competitive Internet backbone market adapt to suit the needs of their ISP
clients, according to a new report by CyberAtlas Research Series, a division
of INT Media Group Inc.

“During stagnant economic conditions, savvy ISP operators know that in order
to raise profit margins they must reduce operating expenses,” the report, Navigating Risks and Opportunities in
the North American Backbone Market
, said. “Cost-cutting tactics include
increasing network efficiency and implementing bandwidth conservation
programs, which could spell disaster for backbone providers’ bandwidth
sales. However, resourceful network operators recognize that this movement
represents new revenue opportunities, which might determine whether ISP
clients stick with their current backbone provider, or switch to a rival
firm.”

The report stems from a survey of visitors to InternetNews.com’s sister
site, ISP-Planet. CyberAtlas Research Series surveyed more than 1,100
respondents from March 6 to 27, 2001. Of those respondents, 256
questionnaires qualified as North American ISP operators.

“One of the things we found is that cost plays a relatively small factor in
determining which network operator an ISP selects for long-term transport,”
said Patricia Fusco, author of the report and managing editor of ISP-Planet.
“Typically newer networks that are still deploying systems to expand
services naturally have higher costs involved. Cash flow is very important
and getting data into those pipes as soon as possible is equally important.”


Indeed, 96 percent of the ISPs surveyed said a backbone provider’s uptime
guarantees, throughput and capacity are the primary factors that determine
which operator they select. Ninety-four percent of the ISPs said a backbone
provider’s network quality — specifically latency and packet delivery
performance — is the key secondary factor that determines the which
operator they select, while 86 percent said customer care — timely order
fulfillment and human contact — are as important as cost-effective pricing
for services.


The report also found that backbone providers must gear their marketing
toward two key segments of decision-makers in ISPs. The top decision
makers — CEOs and upper management — tend to look for cost and
reliability, Fusco said. Secondary decision makers — network
administrators — are looking for network quality and customer care. And
network administrators, which tend to have day-to-day contact with backbone
providers, are much more likely to be dissatisfied with the service they are
receiving.

The report found that 58.2 percent of ISP CEOs or owners are very satisfied
with their current backbone provider, while 27 percent are somewhat
satisfied and 14.8 percent are dissatisfied. However, among network
administrators, 60 percent were very satisfied, 17.4 percent were somewhat
satisfied, and 22.6 percent were dissatisfied.

“Our analysis found more than 14 percent of ISPs said they are dissatisfied
with their current backbone provider, which translates to over 1,000 North
American ISPs that are likely to switch backbone providers this year, and
that equates to about $10.3 billion,” Fusco said.

If the nearly 23 percent of network administrators who are dissatisfied were
to get their way, backbone operators would find more than 1,700 ISP accounts
at risk.

So what can backbone operators do to enhance their standing and maybe pick
up some of those accounts? One method is deploying fixed wireless gear for
connecting ISP customers to T-1 circuits without backhauling fiber or copper
lines.

“Wireless represents some great cost cutting opportunities for backbone
providers that choose to connect ISPs,” Fusco said. “Whether it’s wireless
upstream connections or a wireless backhaul, when you don’t have to break
ground you can really accelerate time-to-market with services, which is
great news for ISPs and better news for network operators.”

Other possibilities include expanding wholesale programs to serve 2- and
3-Tier ISP markets with upstream connections to network operators and
embracing a wholly distributive model for collocation services to small
office-home office (SOHO) and B2B markets via service providers.

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